Secretary of State says Mississippians hurt by Morgan Keegen deception

JACKSON – Secretary of State Delbert Hosemann wants to bar Memphis-based Morgan Keegan from doing business in Mississippi, saying that deceptive practices by the company have cost some Mississippians their “life’s savings.”
Hosemann, along with regulators from Alabama, South Carolina and Kentucky, are filing administrative orders, in an attempt to bar Morgan Keegan from conducting business in the four states.
During a news conference Wednesday at the Mississippi Capitol, where Hosemann was joined by regulators from Alabama and federal regulators, he said bond funds managed by Morgan Keegan had lost $2 billion between March 2007 and March 2008.
The secretary of state said between 1,200 and 1,900 Mississippi customers had lost about $30 million in two funds – the Select Intermediate Bond Fund and the Select High Income Fund.
Hosemann said information on other Morgan Keegan funds in question is not available yet.
“I am sure there are people who lost their life’s savings,” Hosemann said.
Hosemann pointed out Morgan Keegan has a right to an administrative hearing.
“If the allegations … are found to be accurate by the hearing officers, we and other states involved in the investigation intend to hold these companies and individuals responsible,” Hosemann said.
He said there will be an effort to obtain restitution for investors.
In a response to national media inquires, Morgan Keegan spokesman Eric Bran said, “We have always held our obligations to our clients and to regulatory law with the utmost seriousness. We are disappointed at the decision by these agencies and the states to bring charges which we believe are meritless and based upon erroneous hindsight analysis. We will vigorously refute these charges.”
According to the Securities and Exchange Commission, Morgan Keegan “did not calculate accurate net assets” for five funds and “recklessly published” the inaccurate information and “sold shares to investors based on the inflated prices.”
The funds were marketed as “conservative” or safe investments when, in fact, they where not, according to the SEC. At least in part, the funds were backed by subprime mortgages.
According to the regulators, Morgan Keegan misled its own financial advisers about the true value – and true performance – of the funds.
The SEC alleged portfolio manager James C. Kelsoe Jr. and Joseph Thompson Weller, head of the Fund Accounting Department, both of Memphis, perpetuated the fraud.
All of the allegations involve civil or administrative procedure and not criminal charges. But Joseph Borg, director of the Alabama Securities Commission, said during Wednesday’s news conference the investigation is continuing.
Hosemann said it will be up to Attorney General Jim Hood to determine whether criminal charges are warranted in Mississippi. Hosemann’s office regulates securities, but cannot prosecute criminal activity. Hosemann said his findings will be turned over to Hood.
In the filings, Hosemann and the other regulators list individually those they claim are responsible for the inaccurate information.
They are: Kelsoe; Brian Sullivan, chief investment officer; Gary Stringer, who “was responsible for performing due diligence” on the funds; and Michele Wood, a chief compliance officer.
Morgan Keegan is a subsidiary of Regions Financial Corp. Morgan Keegan has offices in Tupelo, Oxford and Starkville in Northeast Mississippi. A message left at the Tupelo office of Morgan Keegan was not returned.
According to a February article in Investment News, Morgan Keegan has spent $251 million on attorneys during the past two years – in large part, defending itself against lawsuits from unhappy investors. For one year, the total spent on attorneys was 12 percent of its total revenue.